The number of homes for sale in the U.S. fell 7.1 percent year-over-year to 1.4 million on a seasonally adjusted basis in May, according to a new report from Redfin.
That’s the lowest level in Redfin’s records, which date back to 2012, and the first annual decline since April 2022.
By comparison, there were 2.2 million homes for sale in May 2019, meaning housing supply was 38.6 percent below pre-pandemic levels this May. America’s housing stock is dwindling because there are very few people selling homes. New listings of homes for sale declined 25.2 percent year-over-year in May to the third-lowest level on record on a seasonally adjusted basis, as homeowners were handcuffed by high mortgage rates.
Nearly every homeowner with a mortgage has an interest rate below 6 percent, meaning many are opting to stay put because selling and buying a new home would mean taking on a higher monthly mortgage payment. The average 30-year-fixed mortgage rate in May was 6.43 percent, up from 5.23 percent a year earlier and a record low of 2.65 percent in 2021, Redfin said.
Data shows the median U.S. home sale price at $419,103 in May. That’s down just 3.1 percent from a year earlier when prices hit a record high of $432,311. While home prices fell in May, they posted a smaller decline than they did in April, when prices dropped 4.2 percent from a year earlier — the largest decrease on record with the exception of January 2012.
“It’s too early to say that price declines have bottomed out,” Redfin Chief Economist Daryl Fairweather said in a release. “Prices may have room to fall because mortgage rates could still rise. The Federal Reserve just signaled that it is likely to continue raising interest rates this year. That could further hamper homebuyer demand and cause home prices to fall in the near term, though the drops would be minimal. We’re unlikely to see double-digit price declines like we did during the 2008 housing crisis.
“Many people think it’s a bad time to buy a home because mortgage rates are high, but they should keep in mind that when rates do ultimately fall, many buyers waiting on the sidelines could jump back in. That could lead to more bidding wars since there aren’t enough homes for sale, and heightened competition could push up prices, offsetting some or all of the benefit of lower interest rates.”
The typical home that sells is no longer selling at a discount. The average sale-to-list price ratio was 100 percent in May, meaning the typical home that sold was purchased at its list price. That’s down from 103.1 percent a year earlier but is the highest level of any May on record prior to the pandemic and follows nine straight months of sub-100 percent sale-to-list price ratios, according to Redfin.
It’s worth noting that price changes differ vastly from market to market. For example, Austin, Texas, Boise, Idaho, and Oakland, Calif., all saw double-digit year-over-year price declines in May, while prices rose roughly 10 percent in Hartford, Conn., Rochester, N.Y., and Cincinnati, Ohio.
Pandemic boomtowns and expensive coastal hubs have seen their housing markets slow relatively quickly because prices soared to unsustainable levels during the pandemic and are now coming back down to earth, Redfin experts added.
While demand from homebuyers has fallen, new listings have fallen even further, meaning many of the buyers who are out there are encountering bidding wars.
Even though the typical home that sold in May was purchased for its list price, more than one-third (37.5 percent) went for more than their list prices—a sign that some buyers are facing competition. That’s down from 59 percent a year earlier but is the highest share of any May on record prior to the pandemic.
Nearly half (46.7 percent) of home offers written by Redfin agents faced a bidding war in May on a seasonally adjusted basis. While that’s down from 56.1 percent a year earlier and a peak of 69.6 percent in January 2022, it’s notable that so many buyers are facing competition at a time when demand is sluggish.
“There’s a huge lack of housing inventory in Miami, and that combined with higher interest rates is making homebuyers’ lives very challenging. Their money just isn’t going as far,” local Redfin real estate agent Rafael Corrales said. “I’m encouraging my buyers to be a little more flexible; in some cases, I’m suggesting they go back to 2021 winning strategies, which can mean waiving contingencies and offering high earnest money deposits because they’re competing against a lot of cash buyers.”
Closed home sales fell 19.8 percent year-over-year on a seasonally adjusted basis in May, the smallest drop in nearly a year and an improvement from the record 35.3 percent decline in January. Still, sales were significantly below pre-pandemic levels, down 21 percent from May 2019.
Pending home sales performed similarly. They fell 21.4 percent year-over-year on a seasonally adjusted basis in May, the smallest drop since last summer and an improvement from the record 36.1 percent decline in November. Pending sales were down 16.1 percent from May 2019 levels, according to Redfin.